2016 Means Substantial Michigan Personal Property Tax Exemption Changes

January 27, 2016

After a lengthy wait on the runway, Michigan’s exemption for manufacturing-related personal property is finally taking off. Taxpayers should be planning to take advantage of this important tax benefit as soon as possible.

Personal property predominately used for industrial processing or direct integrated support of that processing is eligible for exemption. Qualifying property placed into service after 2012 will become exempt this year and the tax on such property placed into service before 2013 will be phased out over seven years. Property that becomes exempt under this program will be subject to a state special assessment called the State Essential Services Assessment (SESA). Paying the SESA instead of the personal property tax will result in material tax savings, especially for property that is located in jurisdictions with high tax rates.

Most taxpayers will be able to determine now whether personal property at a given location will qualify for the exemption. To qualify, over 50% of the original cost of all the personal property at a location must be used for industrial processing or direct integrated support. Most typical manufacturing locations will easily be over the 50% figure. However, those that are close to 50%, may have to wait until all the acquisitions and disposals are recorded for the year to make the calculation.

Taxpayers that qualify for the exemption must claim the exemption by filing Michigan Department of Treasury Form 5278 with the local assessor on or before February 20, 2016. If the form is not received by the local assessor on or before February 20, it will be considered not filed. Unlike some other Michigan tax exemptions, the manufacturer's exemption must be timely claimed to take effect. There is no mechanism to account for late-filed claims or provision for retroactive corrections. However, if a claim is not made in a given year, the taxpayer still has the opportunity to file a claim for future years.

Contributed by Stewart L. Mandell, Honigman Miller Schwartz and Cohn LLP.

View the on-demand webinar “Personal Property Tax Update” with Stewart Mandell and Steve Schneider.